10-K 1 smbc-20240630x10k.htm 10-K
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2024                    OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-23406

SOUTHERN MISSOURI BANCORP, INC.

(Exact name of registrant as specified in its charter)

Missouri

    

43-1665523

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2991 Oak Grove Road, Poplar Bluff, Missouri

63901

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (573) 778-1800

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

    

Trading Symbol

    

Name of Each Exchange
on Which Registered

Common Stock,
par value $0.01 per share

SMBC

The NASDAQ Stock Market, LLC

Securities Registered Pursuant to 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration was required to submit such files).  Yes  No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨

Accelerated filer

Non-accelerated filer

¨  

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  

The aggregate market value of the voting and non voting common equity held by non-affiliates of the registrant, computed by reference to the average of the high and low traded price of such stock as of the last business day of the registrant’s most recently completed second fiscal quarter, was $356.8 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.)

As of September 8, 2024, there were issued and outstanding 11,277,737 shares of the Registrant’s common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of Form 10-K - Portions of the Proxy Statement for the 2024 Annual Meeting of Stockholders.

SOUTHERN MISSOURI BANCORP, INC.

FORM 10-K

TABLE OF CONTENTS

Page

PART I

3

Item 1.

Description of Business

3

Item 1A.

Risk Factors

39

Item 1B.

Unresolved Staff Comments

52

Item 1C.

Cybersecurity

52

Item 2.

Description of Properties

54

Item 3.

Legal Proceedings

55

Item 4.

Mine Safety Disclosures

55

Item 4A.

Information About Our Executive Officers

55

PART II

58

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

58

Item 6.

[Reserved]

59

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

60

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

74

Item 8.

Financial Statements and Supplementary Information

76

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

130

Item 9A.

Controls and Procedures

130

Item 9B.

Other Information

133

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

133

PART III

134

Item 10.

Directors, Executive Officers, and Corporate Governance

134

Item 11.

Executive Compensation

134

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

134

Item 13.

Certain Relationships, Related Transactions, and Director Independence

135

Item 14.

Principal Accountant Fees and Services

135

PART IV

136

Item 15.

Exhibits and Financial Statement Schedules

136

Item 16.

Form 10-K Summary

138

Signatures

139

2

PART I

Item 1.​ ​Description of Business

The disclosures set forth in this Item 1. are qualified by Item 1A. Risk Factors and the section captioned “Forward Looking Statements” in this section and other cautionary statements set forth elsewhere in this report.

General

Southern Missouri Bancorp, Inc. ("Company") is a bank holding company and the parent company of Southern Bank (“Bank”). The Company changed its state of incorporation to Missouri on April 1, 1999, after originally incorporating in Delaware on December 30, 1993, for the purpose of becoming the holding company for the Bank, which was known as Southern Missouri Savings Bank upon completion of its conversion from a state chartered mutual savings and loan association to a state chartered stock savings bank. The Company’s common stock is quoted on the NASDAQ Global Market under the symbol "SMBC".

The Bank was originally chartered by the state of Missouri as a mutual savings and loan association in 1887. On June 4, 2004, Southern Missouri Bank & Trust Co. converted from a Missouri chartered stock savings bank to a Missouri chartered trust company with banking powers ("Charter Conversion"). On June 1, 2009, the institution changed its name to Southern Bank.

The primary regulator of the Bank is the Missouri Division of Finance. The Bank is a member of the Federal Reserve, and the Board of Governors of the Federal Reserve System ("Federal Reserve Board" or "FRB") is the Bank’s primary federal regulator. The Bank’s deposits continue to be insured up to applicable limits by the Deposit Insurance Fund ("DIF") of the Federal Deposit Insurance Corporation ("FDIC"). With the Bank’s conversion to a trust company with banking powers, the Company became a bank holding company regulated by the FRB.

The principal business of the Bank consists of attracting retail deposits from the general public and using such deposits along with wholesale funding from the Federal Home Loan Bank of Des Moines, ("FHLB"), and brokered deposits, to invest in one- to four-family residential mortgage loans, mortgage loans secured by commercial real estate, commercial non-mortgage business loans, construction loans, and consumer loans. These funds are also used to purchase mortgage-backed and related securities ("MBS"), municipal bonds, and other permissible investments.

At June 30, 2024, the Company had total assets of $4.6 billion, total deposits of $4.0 billion and stockholders’ equity of $488.7 million. The Company has not engaged in any significant activity other than holding the stock of the Bank. Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank. The Company’s revenues are derived principally from interest earned on loans and investment securities, and, to a lesser extent, banking service charges, bank card interchange fees, gains on sales of loans and loan servicing income, loan late charges, increases in the cash surrender value of bank owned life insurance, and other fee income.

Acquisitions During The Last Ten Years

On January 20, 2023, the Company completed its acquisition of Citizens Bancshares, Co. (“Citizens”), the parent company of Citizens Bank & Trust Company (“Citizens Bank”). At closing, before purchase accounting adjustments, Citizens held total assets of $985.7 million, loans, net of $456.0 million, and deposits of $851.0 million. The acquisition resulted in goodwill of $23.5 million, which was attributable to synergies and economies of scale expected to result from combining the operations of the Bank and Citizens Bank. Goodwill from this transaction was recorded at the Company level, and was not deductible for tax purposes.

On February 25, 2022, the Company completed its acquisition of Fortune Financial, Inc. (“Fortune”), the parent company of FortuneBank (“FB”) in a stock and cash transaction. At closing, before purchase accounting adjustments, Fortune held total assets of $253.0 million, loans, net of $202.1 million, and deposits of $218.3 million. The acquisition resulted in goodwill of $12.8 million, which was attributable to synergies and economies of scale expected to result from

3

combining the operations of the Bank and FB. Goodwill from this transaction was recorded at the Company level, and was not deductible for tax purposes.

On December 15, 2021, the Company completed its acquisition of the Cairo, Illinois, branch (“Cairo”) of First National Bank, Oldham, South Dakota. The deal resulted in Southern Bank relocating its facility from its prior location in Cairo to the First National Bank location in Cairo. The Company views the acquisition and updates to the new facility as an expression of its continuing commitment to the Cairo community. The acquisition resulted in goodwill of $442,000, which was recorded at the Bank level, and was not deductible for tax purposes.

On May 22, 2020, the Company completed its acquisition of Central Federal Bancshares, Inc. (“Central”) and its wholly owned subsidiary, Central Federal Savings & Loan Association of Rolla (“Central Federal”), in an all-cash transaction. At closing, Central held total assets of $70.6 million, loans, net, of $51.4 million, and deposits of $46.7 million. The acquisition resulted in a bargain purchase gain of $123,000, while none of the purchase price was allocated to goodwill.

On November 21, 2018, the Company completed its acquisition of Gideon Bancshares Company (“Gideon”) and its wholly owned subsidiary, First Commercial Bank (“First Commercial”), in a stock and cash transaction. At closing, Gideon held total assets of $217 million, loans, net, of $144 million, and deposits of $171 million. The acquisition resulted in goodwill of $1.0 million, which was attributable to synergies and economies of scale expected to result from combining the operations of the Bank and First Commercial. Goodwill from this transaction was recorded at the Bank level, and was not deductible for tax purposes.

On February 23, 2018, the Company completed its acquisition of Southern Missouri Bancshares, Inc. (“Bancshares”), and its wholly owned subsidiary, Southern Missouri Bank of Marshfield (“SMB-Marshfield”), in a stock and cash transaction. SMB-Marshfield was merged into the Bank at acquisition. At closing, Bancshares held total assets of $86.2 million, loans, net, of $68.3 million, and deposits of $68.2 million. The acquisition resulted in goodwill of $4.4 million, which was attributable to synergies and economies of scale expected to result from combining the operations of the Bank and SMB-Marshfield. Goodwill from this transaction was recorded at the Company level, and was not deductible for tax purposes.

On June 16, 2017, the Company completed its acquisition of Tammcorp, Inc. (Tammcorp), and its subsidiary, Capaha Bank (Capaha), Tamms, Illinois, in a stock and cash transaction. Capaha was merged into the Bank at acquisition. At closing, Tammcorp held total assets of $187 million, loans, net, of $153 million, and deposits of $167 million. A Tammcorp note payable of $3.7 million was contractually required to be repaid in conjunction with the acquisition. The acquisition resulted in goodwill of $4.1 million, which was attributable to synergies and economies of scale expected to result from combining the operations of the Bank and Capaha. Goodwill from this transaction was recorded at the Company level, and was not deductible for tax purposes.

On August 5, 2014, the Company completed its acquisition of Peoples Service Company (PSC) and its subsidiaries, Peoples Banking Company (PBC) and Peoples Bank of the Ozarks (Peoples), Nixa, Missouri, in a stock and cash transaction (the “Peoples Acquisition”). Peoples was merged into the Bank in early December, 2014, in connection with the conversion of Peoples’ data system. At closing, PSC held total assets of $267 million, loans, net, of $193 million, and deposits of $221 million. The Company acquired Peoples primarily for the purpose of expanding its commercial banking activities to markets where it believes the Company’s business model will perform well, and for the long-term value of its core deposit franchise. Notes payable of $2.9 million were contractually required to be repaid on the date of acquisition. The acquisition resulted in goodwill of $3.0 million, which was attributable to synergies and economies of scale expected to result from combining the operations of the Bank and Peoples. Goodwill from this transaction was recorded at the Company level, and was not deductible for tax purposes.

The Company completed each of the above whole bank acquisitions primarily for the purpose of expanding its commercial banking activities where it believes the Company’s business model will perform well and for the long-term value of its core deposit franchise.

4

Capital Raising Transactions

On June 20, 2017, the Company completed an at-the-market common stock issuance. A total of 794,762 shares of the Company’s common stock were sold at a weighted-average price of approximately $31.46 per share, representing gross proceeds to the Company of approximately $25.0 million. The proceeds from the transaction have been used for general corporate purposes, including working capital to support organic growth at Southern Bank, and to support acquisitions to the extent available.

On November 22, 2011, the Company completed an underwritten public offering of 1,150,000 shares of common stock at a price to the public of $19.00 per share, for aggregate gross proceeds of $21.9 million. The proceeds from the offering have been used for general corporate purposes, including the funding of loan growth and the purchase of securities.

Forward Looking Statements

This document contains statements about the Company and its subsidiaries which we believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities, interest rates, cost savings and funding advantages expected or anticipated to be realized by management. Words such as "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify these forward-looking statements. Forward-looking statements by the Company and its management are based on beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and are not guarantees of future performance. The important factors we discuss below, as well as other factors discussed under the caption "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and identified in the filing and in our other filings with the SEC and those presented elsewhere by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document:

expected cost savings, synergies and other benefits from our merger and acquisition activities, including our recently completed acquisitions, might not be realized within the anticipated time frames, to the extent anticipated, or at all, and costs or difficulties relating to integration matters, including but not limited to customer and employee retention and labor shortages, might be greater than expected and goodwill impairment charges might be incurred;
potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth;
the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
fluctuations in interest rates and inflation, including the effects of a potential recession whether caused by Federal Reserve actions or otherwise or slowed economic growth caused by changes in oil prices or supply chain disruptions;
the impact of monetary and fiscal policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the U.S. Government and other governmental initiatives affecting the financial services industry;
the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment;

5

the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses on loans;
our ability to access cost-effective funding and maintain sufficient liquidity;
the timely development of and acceptance of our new products and services and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors’ products and services;
fluctuations in real estate values and both residential and commercial real estate markets, as well as agricultural business conditions;
demand for loans and deposits;
the impact of a federal government shutdown;
legislative or regulatory changes that adversely affect our business;
the effects of climate change, severe weather events, other natural disasters, war, terrorist activities or civil unrest and their effects on economic and business environments in which the Company operates;
changes in accounting principles, policies, or guidelines;
results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require an increase in our reserve for credit losses on loans or a write-down of assets;
the impact of technological changes and an inability to keep pace with the rate of technological advances;
cyber threats, such as phishing, ransomware, and insider attacks, can lead to financial loss, reputational damage, and regulatory penalties if sensitive customer data and critical infrastructure are not adequately protected; and
our success at managing the risks involved in the foregoing.

Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. The Company wishes to advise readers that the factors listed above and other risks described in this Annual Report on Form 10-K, including, without limitation, those described under Item 1A. “Risk Factors,” and other documents filed or furnished from time to time by the Company with the SEC (and are available on our website at www.bankwithsouthern.com and on the SEC’s website at www.sec.gov) could affect the Company’s financial performance and cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. We undertake no obligation to publicly update or revise any forward-looking statements or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed might not occur, and you should not put undue reliance on any forward-looking statements.

Market Area

The Bank provides its customers with a full array of community banking services and conducts its business from its headquarters in Poplar Bluff, as well as 62 full service branch offices, three limited service branch offices, and two loan production offices, as of June 30, 2024. The branch offices are located in Poplar Bluff (4), Van Buren, Dexter (2), Kennett, Doniphan, Sikeston, Qulin, Springfield (3), Thayer (2), West Plains (2), Alton, Clever, Forsyth, Fremont

6

Hills, Kimberling City, Ozark, Nixa, Rogersville, Marshfield, Cape Girardeau (2), Jackson, Gideon, Chaffee, Benton, Advance, Bloomfield, Essex, Rolla, Arnold, Oakville, Kansas City (2), Kearney, Lee’s Summit, Macon, Maryville, Boonville, Brookfield, Chillicothe (2), Smithville, St. Joseph (2), and Trenton, Missouri; Jonesboro (2), Paragould, Batesville, Searcy, Bald Knob, Bradford, and Cabot, Arkansas; Anna, Cairo, and Tamms, Illinois; and Leawood, Kansas. In January 2023, the Company completed a merger with Citizens adding fourteen branches in markets in Missouri and Kansas, including the Kansas City and St. Joseph Metropolitan Statistical Areas (MSAs). In fiscal 2024, the bank relocated two loan production offices in Lee’s Summit, Missouri, and Overland Park, Kansas.

For purposes of management and oversight of its operations, the Bank has organized its facilities into five regional markets. The Bank’s east region includes 24 of its facilities, one of which is limited service, which are situated in Butler, Cape Girardeau, Carter, New Madrid, Ripley, Scott, and Stoddard counties in Missouri, and Alexander and Union counties in Illinois. These counties have a total population of approximately 244,000, and included within this market area is the Cape Girardeau MSA, which has a population of approximately 98,000. At June 30, 2024 the Bank’s south region includes 13 of its facilities, one of which is limited service, which are situated in Dunklin, Howell, and Oregon counties in Missouri, and Craighead, Greene, Independence, Lonoke, and White counties in Arkansas. These counties have a total population of approximately 430,000, and included within this market area is the Jonesboro MSA, which has a population of approximately 136,000. The Cabot, Arkansas, branch in Lonoke County, is located in the northeast corner of the Little Rock MSA, which has a population of approximately 764,000. The Bank’s west region includes 12 of its facilities, which are situated in Christian, Greene, Phelps, Stone, Taney, and Webster counties in Missouri. These counties have a total population of approximately 575,000, and included within this market area is the Springfield MSA, which has a population of approximately 491,000. The Bank’s north region includes two of its facilities, which are situated in Jefferson and St. Louis counties. The market area also includes the City of St. Louis. The two counties and the City of St. Louis have a total population of approximately 1.5 million. The north region market area is within the St. Louis MSA, which has a population of approximately 2.8 million. The Bank’s northwest region includes 15 of its facilities, one of which is limited service, which are situated in Buchanan, Clay, Cooper, Grundy, Jackson, Linn, Livingston, Macon, Nodaway, and Platte counties in Missouri, and Johnson county in Kansas. These counties have a total population of approximately 1.3 million, and some counties in this market area are located within the Kansas City MSA, or the St. Joseph MSA, which has a combined population of approximately 2.3 million. Each of these markets may also serve other communities just outside the area described, but without a notable impact on the demographics of the market area.

The Bank’s east and south regions, and part of the northwest region. are generally rural in nature with economies supported by manufacturing activity, agriculture (livestock, dairy, poultry, rice, timber, soybeans, wheat, melons, corn, and cotton), healthcare, and education. Large employers include hospitals, manufacturers, school districts, and colleges. In the west region, the Bank’s operations are generally more concentrated in the Springfield, Missouri, MSA, and major employers include healthcare providers, educational institutions, federal, local, and state government, retailers, transportation and distribution firms, and leisure, entertainment, and hospitality interests. In the north region, major employers include aviation and transportation, healthcare providers, medical research, educational institutions, retailers, manufacturers, energy/utilities, and hospitality. In the portion of the northwest region within the Kansas City MSA, major employers include healthcare providers, manufacturers, medical research, educational institutions, retailers, and hospitality. For purposes of the Bank’s lending policy, the Bank’s primary lending area is considered to be the counties where the Bank has a branch facility, and any contiguous county.

Competition

The Bank faces strong competition in attracting deposits (its primary source of lendable funds) and originating loans. The most recent market share data by the FDIC reflected that the Bank was one of 265 bank or saving association groups located in Missouri competing for approximately $250.0 billion in deposits at FDIC-insured institutions. The Bank’s market share was approximately 1.29% in the state of Missouri, where the majority of our deposits reside amongst the 55 locations in the state.

Competitors for deposits include commercial banks, credit unions, digital payment applications, money market funds, and other investment alternatives, such as mutual funds, full service and discount broker-dealers, equity markets, brokerage accounts and government securities. The Bank’s competition for loans comes principally from other financial

7

institutions, mortgage banking companies, mortgage brokers and life insurance companies. The Bank expects competition to continue to increase in the future as a result of legislative, regulatory and technological changes within the financial services industry. Technological advances, for example, have lowered barriers to market entry, allowed banks to expand their geographic reach by providing services over the Internet and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. The Gramm-Leach-Bliley Act, which permits affiliation among banks, securities firms and insurance companies, also has changed the competitive environment in which the Bank conducts business.

Lending Activities

General. The Bank’s lending activities consist of originating loans secured by mortgages on one- to four-family and multi-family residential real estate, commercial and agricultural real estate, construction loans on residential and commercial properties, commercial and agricultural business loans, and consumer loans. The Bank has also occasionally purchased loan participation interests originated by other lenders. At June 30, 2024, the Bank had purchased participation interests in 71 loans with balances outstanding totaling $178.5 million.

Supervision of the loan portfolio is the responsibility of our Chief Lending Officer, Rick Windes, Regional President Justin Cox, and our Chief Credit Officer, Mark Hecker (our “Senior Lending and Credit Officers”). The Chief Lending Officer and Regional President are responsible for oversight of loan production. The Chief Credit Officer is responsible for oversight of underwriting, loan policy, and administration. Loan officers have varying amounts of lending authority depending upon experience and types of loans. Loans beyond their authority are presented to the next level of authority, which may include one of five Regional Loan Committees, the Senior Loan Committee, an Agricultural Loan Committee, a Senior Agricultural Loan Committee, an SBA Loan Committee, or a Bank Executive Loan Committee.

The Regional Loan Committees each consists of one director appointed by the Board of Directors and lenders selected by our Senior Lending and Credit Officers, and is authorized to approve lending relationships up to $4.0 million. The Senior Loan Committee consists of our Senior Lending and Credit Officers and lenders selected by them that have a higher level of lending experience. The Senior Loan Committee is authorized to approve lending relationships up to $10.0 million. The Bank’s Agricultural Loan Committee consists of several lending officers with agricultural lending experience selected by our Senior Lending and Credit Officers, and is authorized to approve agricultural lending relationships up to $4.0 million. The Senior Agricultural Loan Committee is authorized to approve agricultural lending relationships up to $10.0 million and consists of our Chief Credit Officer, as well as several senior lending officers with agricultural lending experience selected by our Senior Lending and Credit Officers. The Bank Executive Loan Committee consists of our Senior Lending and Credit Officers, plus our Chairman/CEO and our President/Chief Administrative Officer.

In addition to the approval of the Senior Loan Committee or the Bank Executive Loan Committee, lending relationships in excess of $10.0 million require the approval of the Directors’ Loan Committee, which is comprised of all Bank directors. All loans are subject to ratification by the full Board of Directors.

The aggregate amount of loans that the Bank is permitted to make under applicable federal regulations to any one borrower, including related entities, or the aggregate amount that the Bank could have invested in any one real estate project, is based on the Bank’s capital levels. At June 30, 2024, the maximum amount which the Bank could lend to any one borrower and the borrower’s related entities was approximately $126.4 million. At June 30, 2024, the Bank’s ten largest credit relationships, as defined by loan to one borrower limitations, ranged from $27.3 million to $76.8 million, net of participation interests sold. As of June 30, 2024, the majority of these credits were commercial real estate, multi-family real estate, or commercial business loans, and all of these relationships were performing in accordance with their terms.

8

Loan Portfolio Analysis. The following table sets forth the composition of the Bank’s loan portfolio by type of loan and type of security as of the dates indicated.

At June 30, 

 

2024

2023

2022

2021

2020

 

    

Amount

    

Percent

    

Amount

    

Percent

    

Amount

    

Percent

    

Amount

    

Percent

    

Amount

    

Percent

 

(Dollars in thousands)

 

Type of Loan:

Mortgage Loans:

  

  

  

  

  

  

  

  

  

  

Residential real estate

$

1,185,692

 

31.22

%  

$

1,133,417

 

29.85

%  

$

904,160

 

33.66

%  

$

721,216

 

32.78

%  

$

627,357

 

29.29

%

Commercial real estate (1)

 

1,622,365

 

42.72

 

1,562,379

 

41.14

 

1,146,673

 

42.69

 

889,793

 

40.44

 

887,419

 

41.43

Construction

 

438,134

 

11.55

 

550,052

 

14.49

 

258,072

 

9.61

 

208,824

 

9.49

 

185,924

 

8.68

Total mortgage loans

 

3,246,191

 

85.49

 

3,245,848

 

85.48

 

2,308,905

 

85.96

 

1,819,833

 

82.71

 

1,700,700

 

79.40

Other Loans:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Automobile loans

 

22,546

 

0.59

 

21,761

 

0.57

 

17,316

 

0.64

 

15,146

 

0.69

 

12,084

 

0.56

Commercial business (2) (3)

 

668,292

 

17.60

 

599,030

 

15.78

 

441,598

 

16.44

 

414,124

 

18.82

 

468,448

 

21.87

Home equity

 

73,053

 

1.92

 

65,053

 

1.71

 

45,460

 

1.69

 

37,783

 

1.72

 

43,149

 

2.01

Other

 

48,999

 

1.30

 

46,701

 

1.24

 

30,220

 

1.13

 

24,745

 

1.12

 

25,534

 

1.20

Total other loans

 

812,890

 

21.41

 

732,545

 

19.30

 

534,594

 

19.90

 

491,798

 

22.35

 

549,215

 

25.64

Total loans

 

4,059,081

 

106.90

 

3,978,393

 

104.78

 

2,843,499

 

105.86

 

2,311,631

 

105.06

 

2,249,915

 

105.04

Less:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Unfunded commitments on construction loans

 

209,046

 

5.51

 

359,196

 

9.46

 

123,656

 

4.60

 

74,540

 

3.39

 

78,452

 

3.66

Deferred fees and discounts

 

232

 

0.01

 

299

 

0.01

 

453

 

0.02

 

3,625

 

0.16

 

4,395

 

0

Allowance for credit losses

 

52,516

 

1.38

 

47,820

 

1.26

 

33,192

 

1.24

 

33,222

 

1.51

 

25,139

 

1.17

Net loans receivable

$

3,797,287

 

100.00

%  

$

3,571,078

 

94.05

%  

$

2,686,198

 

100.00

%  

$

2,200,244

 

100.00

%  

$

2,141,929

 

100.00

%

Type of Security:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Residential real estate

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

One-to four-family

$

907,915

 

23.91

%  

$

865,144

 

22.78

%  

$

690,478

 

25.71

%  

$

526,208

 

23.92

%  

$

482,009

 

22.50

%

Multi-family

 

619,094

 

16.30

 

648,697

 

17.08

 

376,854

 

14.03

 

359,200

 

16.33

 

286,654

 

13.38

Commercial real estate

 

1,425,104

 

37.53

 

1,431,166

 

37.69

 

975,100

 

36.30

 

701,438

 

31.88

 

688,145

 

32.13

Land

 

294,077

 

7.74

 

300,841

 

7.92

 

266,472

 

9.92

 

232,987

 

10.59

 

243,892

 

11.39

Commercial

 

668,292

 

17.60

 

599,030

 

15.78

 

441,598

 

16.44

 

414,124

 

18.82

 

468,448

 

21.88

Consumer and other

 

144,599

 

3.82

 

133,515

 

3.52

 

92,997

 

3.46

 

77,674

 

3.52

 

80,767

 

3.77

Total loans

 

4,059,081

106.90

3,978,393

104.77

2,843,499

105.86

2,311,631

105.06

2,249,915

105.04

Less:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Unfunded commitments on construction loans

 

209,046

 

5.51

 

359,196

 

9.46

 

123,656

 

4.60

 

74,540

 

3.39

 

78,452

 

3.66

Deferred fees and discounts

 

232

 

0.01

 

299

 

0.01

 

453

 

0.02

 

3,625

 

0.16

 

4,395

 

0.21

Allowance for credit losses

 

52,516

 

1.38

 

47,820

 

1.26

 

33,192

 

1.24

 

33,222

 

1.51

 

25,139

 

1.17

Net loans receivable

$

3,797,287

 

100.00

%  

$

3,571,078

 

94.04

%  

$

2,686,198

 

100.00

%  

$

2,200,244

 

100.00

%  

$

2,141,929

 

100.00

%

(1)Commercial real estate loan balances included farmland and other agricultural-related real estate loans of $232.5 million, $238.1 million, $213.1 million, $180.6 million, and $185.3 million, as of June 30, 2024, 2023, 2022, 2021, and 2020, respectively.
(2)Commercial business loan balances included agricultural equipment and production loans of $176.0 million, $138.3 million, $110.3 million, $104.9 million, and $100.3 million, as of June 30, 2024, 2023, 2022, 2021, and 2020, respectively.
(3)Commercial business loan balances included PPP loans of $433,000, $601,000, $3.1 million, $63.0 million and $132.3 million as of June 30, 2024, 2023, 2022, 2021 and 2020, respectively.

9

The following table shows the fixed and adjustable rate composition of the Bank’s loan portfolio at the dates indicated.

At June 30, 

 

2024

2023

2022

2021

2020

 

    

Amount

    

Percent

    

Amount

    

Percent

    

Amount

    

Percent

    

Amount

    

Percent

    

Amount

    

Percent

 

 

(Dollars in thousands)

Type of Loan:

Fixed-Rate Loans:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Residential real estate

$

916,546

 

24.14

%

$

921,251

 

25.80

%

$

774,159

 

28.82

%  

$

556,360

 

25.29

%  

$

407,437

 

19.02

%  

Commercial real estate

 

1,314,620

 

34.62

 

1,293,868

 

36.23

 

986,199

 

36.72

 

743,976

 

33.81

 

725,830

 

33.89

Construction

 

360,234

 

9.49

 

485,516

 

13.60

 

241,159

 

8.98

 

202,309

 

9.19

 

183,214

 

8.55

Consumer

 

59,600

 

1.57

 

59,348

 

1.66

 

44,698

 

1.66

 

37,045

 

1.68

 

35,139

 

1.64

Commercial business

 

371,850

 

9.79

 

347,226

 

9.72

 

277,617

 

10.34

 

303,996

 

13.82

 

365,219

 

17.05

Total fixed-rate loans

 

3,022,850

 

79.61

 

3,107,209

 

87.01

 

2,323,832

 

86.52

 

1,843,686

 

83.79

 

1,716,839

 

80.15

Adjustable-Rate Loans:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Residential real estate

 

269,146

 

7.09

 

212,166

 

5.94

 

130,001

 

4.84

 

164,856

 

7.49

 

219,920

 

10.27

Commercial real estate

 

307,745

 

8.10

 

268,511

 

7.52

 

160,474

 

5.97

 

145,817

 

6.63

 

161,589

 

7.54

Construction

 

77,900

 

2.05

 

64,536

 

1.81

 

16,913

 

0.63

 

6,515

 

0.30

 

2,710

 

0.13

Consumer

 

84,998

 

2.24

 

74,167

 

2.08

 

48,298

 

1.80

 

40,629

 

1.84

 

45,628

 

2.13

Commercial business

 

296,442

 

7.81

 

251,804

 

7.05

 

163,981

 

6.10

 

110,128

 

5.01

 

103,229

 

4.82

Total adjustable-rate loans

 

1,036,231

 

27.29

 

871,184

 

24.40

 

519,667

 

19.34

 

467,945

 

21.27

 

533,076

 

24.89

Total loans

 

4,059,081

 

106.90

 

3,978,393

 

111.41

 

2,843,499

 

105.86

 

2,311,631

 

105.06

 

2,249,915

 

105.04

Less:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Unfunded commitments on construction loans

 

209,046

 

5.51

 

359,196

 

10.06

 

123,656

 

4.60

 

74,540

 

3.39

 

78,452

 

3.66

Deferred fees and discounts

 

232

 

0.01

 

299

 

0.01

 

453

 

0.02

 

3,625

 

0.16

 

4,395

 

0

Allowance for credit losses

 

52,516

 

1.38

 

47,820

 

1.34

 

33,192

 

1.24

 

33,222

 

1.51

 

25,139

 

1.17

Net loans receivable

$

3,797,287

 

100.00

%

$

3,571,078

 

100.00

%

$

2,686,198

 

100.00

%  

$

2,200,244

 

100.00

%  

$

2,141,929

 

100.00

%  

Residential Mortgage Lending. The Bank actively originates loans for the acquisition or refinance of one- to four-family residences. These loans are originated as a result of customer and real estate agent referrals, existing and walk-in customers, and from responses to the Bank’s marketing campaigns. At June 30, 2024, residential loans secured by one- to four-family residences totaled $907.9 million, or 23.9% of net loans receivable.

The Bank currently offers both fixed-rate and adjustable-rate mortgage (“ARM”) loans. During the year ended June 30, 2024, the Bank originated $49.4 million of ARM loans and $97.6 million of fixed-rate loans that were secured by one- to four-family residences, for retention in the Bank’s portfolio. An additional $21.9 million in fixed-rate one- to four-family residential loans were originated for sale on the secondary market. Substantially all of the one- to four-family residential mortgage originations in the Bank’s portfolio are secured by property located within the Bank’s market area. Fixed rate one- to four- family loans represented 77.3% of the one- to four- family portfolio with a weighted average maturity of 14.7 years.

The Bank generally originates one- to four-family residential mortgage loans for retention in its portfolio in amounts up to 90% of the lower of the purchase price or appraised value of residential property. For loans originated in excess of 80% loan-to-value, the Bank generally charges an additional 25-75 basis points, but does not require private mortgage insurance. At June 30, 2024, the outstanding balance of loans originated with a loan-to-value ratio in excess of 80% was $142.9 million. For fiscal years ended June 30, 2024, 2023, 2022, 2021, and 2020, originations of one- to four-family loans in excess of 80% loan-to-value have totaled $28.3 million, $27.3 million, $50.8 million, $52.2 million, and $45.9 million, respectively, totaling $204.5 million. The outstanding balance of those loans originated in the last five years at June 30, 2024, was $122.4 million. Originating loans with higher loan-to-value ratios presents additional credit risk to the Bank. Consequently, the Bank limits this product to borrowers with a favorable credit history and a demonstrable ability to service the debt. The majority of new residential mortgage loans originated by the Bank for retention in its portfolio conform to secondary market underwriting standards; however, documentation of loan files may not be adequate to allow for immediate sale. The interest rates charged on these loans are competitively priced based on local market conditions, the availability of funding, and anticipated profit margins. Fixed and ARM loans originated by the Bank are amortized over periods as long as 30 years, but typically are repaid over shorter periods.

Fixed-rate loans secured by one- to four-family residences have contractual maturities up to 30 years, and are generally fully amortizing with payments due monthly. These loans normally remain outstanding for a substantially shorter period of time because of refinancing and other prepayments. A significant change in the interest rate environment can alter the average life of a residential loan portfolio. The one- to four-family fixed-rate loans do not

10

contain prepayment penalties. At June 30, 2024, one- to four-family loans with a fixed rate totaled $622.1 million and had a weighted-average maturity of 176 months.

The Bank also originates one- to four-family ARM loans, which adjust annually, after an initial period of one to seven years. Typically, originated ARM loans secured by owner occupied properties reprice at a margin of 2.75% to 3.00% over the weekly average yield on United States Treasury securities adjusted to a constant maturity of one year (“CMT”). Generally, ARM loans secured by non-owner occupied residential properties are tied to the Wall Street Journal prime rate. Owner occupied residential ARM loan originations are subject to annual and lifetime interest rate caps and floors. As a consequence of using interest rate caps, initial rates which may be at a premium or discount, and a "CMT" loan index, the interest earned on the Bank’s ARMs will react differently to changing interest rates than the Bank’s cost of funds. At June 30, 2024, one- to four-family loans tied to the CMT index totaled $103.4 million. One- to four-family loans tied to other indices totaled $79.2 million.

In underwriting one- to four-family residential real estate loans, the Bank evaluates the borrower’s ability to meet debt service requirements at current as well as fully indexed rates for ARM loans, and the value of the property securing the loan. Most properties securing real estate loans made by the Bank during fiscal 2024 had appraisals performed on them by independent fee appraisers approved and qualified by the Board of Directors. The Bank generally requires borrowers to obtain title insurance and fire, property and flood insurance (if indicated) in an amount not less than the amount of the loan. Real estate loans originated by the Bank generally contain a "due on sale" clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the security property.

The Bank also originates loans secured by multi-family residential properties that are often located outside the Company’s primary market area, but made to borrowers who operate within the primary market area. At June 30, 2024, the Bank had $384.7 million, or 10.1% of net loans receivable, in multi-family residential real estate. Fixed rate loans secured by multi-family residential properties represented 77.5% of the multi-family residential property portfolio with a weighted average maturity of 6.5 years. The majority of the multi-family residential loans that are originated by the Bank are amortized over periods generally up to 25 years, with balloon maturities up to ten years. Both fixed and adjustable interest rates are offered and it is typical for the Bank to include an interest rate “floor” and “ceiling” in variable-rate loan agreements. Variable rate loans typically adjust daily, monthly, quarterly or annually based on the Wall Street prime interest rate. Generally, multi-family residential loans do not exceed 85% of the lower of the appraised value or purchase price of the secured property. The Bank generally requires a Board-approved independent certified fee appraiser to be engaged in determining the collateral value. As a general rule, the Bank requires the unlimited guaranty of all individuals (or entities) owning (directly or indirectly) 20% or more of the borrowing entity.

The primary risk associated with multi-family loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. High unemployment or generally weak economic conditions may result in borrowers having to provide rental rate concessions to achieve adequate occupancy rates. In an effort to reduce these risks, the Bank evaluates the guarantor’s ability to inject personal funds as a tertiary source of repayment.

Commercial Real Estate Lending. The Bank actively originates loans secured by commercial real estate including farmland, single- and multi-tenant retail properties, restaurants, hotels, nursing homes and other healthcare related facilities, land (improved and unimproved), convenience stores, automobile dealerships, and other automotive-related services, warehouses and distribution centers, and other businesses generally located in the Bank’s market area. At June 30, 2024, the Bank had $1.6 billion in commercial real estate loans, which represented 42.7% of net loans receivable. Of this amount, $232.5 million were loans secured by agricultural properties. Also included in commercial real estate were $25.1 million of non-owner occupied office property, comprised of 35 loans, representing 0.65% of total loans as of June 30, 2024. Notably, none of these loans were adversely classified as of that date, and they generally consist of smaller spaces with diverse tenant bases. In addition, the multifamily residential real estate loan portfolio included in commercial real estate typically includes loans secured by properties currently participating in the Low-Income Housing Tax Credit (LIHTC) program or those that have exited the program. The company continues to closely monitor its commercial real estate concentration and the performance of individual segments to manage risk effectively. The Bank expects to maintain, and may increase, the percentage of commercial real estate loans, inclusive of agricultural

11

properties, in its total portfolio. Fixed rate commercial real estate loans represented 81.0% of the commercial real estate portfolio with a weighted average maturity of 4.4 years.

Commercial real estate loans originated by the Bank are generally based on amortization schedules of up to 25 years with monthly principal and interest payments. Generally, these loans have fixed interest rates and maturities ranging up to ten years, with a balloon payment due at maturity. Alternatively, for some loans, the interest rate adjusts at least annually, based on the Wall Street Journal prime rate, after an initial fixed-rate period up to seven years. The Bank typically includes an interest rate "floor" in the loan agreement. Generally, loans for improved commercial properties do not exceed 80% of the lower of the appraised value or the purchase price of the secured property. Agricultural real estate terms offered differ slightly, with amortization schedules of up to 25 years with an 80% loan-to-value ratio, or 30 years with a 75% loan-to-value ratio. Agricultural real estate loans generally require annual, instead of monthly, payments. Before credit is extended, the Bank analyzes the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property and the value of the property itself. Generally, personal guarantees are obtained from the borrower in addition to obtaining the secured property as collateral for such loans. The Bank also generally requires appraisals on properties securing commercial real estate to be performed by a Board-approved independent certified fee appraiser.

Generally, loans secured by commercial real estate involve a greater degree of credit risk than one- to four-family residential mortgage loans. These loans typically involve large balances to single borrowers or groups of related borrowers. Because payments on loans secured by commercial real estate are often dependent on the successful operation or management of the secured property, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. See "Asset Quality."

Construction Lending. The Bank originates real estate loans secured by property or land that is under construction or development. At June 30, 2024, the Bank had $438.1 million, or 11.5% of net loans receivable in construction loans outstanding and unfunded commitments on construction loans.

Construction loans originated by the Bank are generally secured by mortgage loans for the construction of owner occupied residential real estate or to finance speculative construction secured by residential real estate, land development, or owner-occupied or non-owner occupied commercial real estate. At June 30, 2024, $106.9 million of the Bank’s construction loans outstanding and unfunded commitments on construction loans were secured by one- to four-family residential real estate, $234.4 million were secured by multi-family residential real estate, and $96.8 million were secured by commercial real estate. During construction, these loans typically require monthly interest-only payments with single-family residential construction loans maturing in nine to twelve months, while multi-family or commercial construction loans typically mature in 12 to 36 months. Once construction is completed, construction loans may be converted to permanent financing, generally with monthly payments using amortization schedules of up to 30 years on residential and up to 25 years on commercial real estate.

Speculative construction and land development lending generally affords the Bank an opportunity to receive higher interest rates and fees with shorter terms to maturity than those obtainable from residential lending. Nevertheless, construction and land development lending is generally considered to involve a higher level of credit risk than one- to four-family residential lending due to (i) the concentration of principal among relatively few borrowers and development projects, (ii) the increased difficulty at the time the loan is made of accurately estimating building or development costs and the selling price of the finished product, (iii) the increased difficulty and costs of monitoring and disbursing funds for the loan,  (iv) the higher degree of sensitivity to increases in market rates of interest and changes in local economic conditions, and (v) the increased difficulty of working out problem loans. Due in part to these risk factors, the Bank may be required from time to time to modify or extend the terms of some of these types of loans. In an effort to reduce these risks, the application process includes a submission to the Bank of accurate plans, specifications and costs of the project to be constructed. These items are also used as a basis to determine the appraised value of the subject property. Loan amounts are generally limited to 80% of the lesser of current appraised value and/or the cost of construction.

At June 30, 2024, construction loans outstanding included 48 loans, totaling $22.0 million, for which a modification had been agreed to. At June 30, 2023, construction loans outstanding included 53 loans, totaling $33.4 million, for which a modification had been agreed to. In general, these modifications were solely for the purpose of

12

extending the maturity date due to conditions described above, pursuant to the Company’s normal underwriting and monitoring procedures. As these modifications were not executed due to financial difficulty on the part of the borrower, they were not accounted for as modifications to borrowers experiencing financial difficulty.

Consumer Lending. The Bank offers a variety of secured consumer loans, including: home equity, automobile, second mortgage, mobile home and deposit-secured loans. The Bank originates substantially all of its consumer loans in its primary market area. Generally, consumer loans are originated with fixed rates for terms of up to approximately 66 months, with the exception of home equity lines of credit, which are variable, tied to the prime rate of interest, and are for a period of ten years. At June 30, 2024, the Bank’s consumer loan portfolio totaled $144.6 million, or 3.8% of net loans receivable.

Home equity loans represented 50.5% of the Bank’s consumer loan portfolio at June 30, 2024, and totaled $73.1 million, or 1.9% of net loans receivable.

Home equity lines of credit (HELOCs) are secured with a deed of trust or mortgage and are generally issued for up to 90% of the appraised or assessed value of the property securing the line of credit, less the outstanding balance on the first mortgage. Interest rates on HELOCs are adjustable and are tied to the current prime interest rate, generally with an interest rate floor in the loan agreement. This rate is obtained from the Wall Street Journal and adjusts on a daily basis. Interest rates are based upon the loan-to-value ratio of the property with better rates given to borrowers with more equity. HELOCs are secured by residential properties, which is generally considered to be stronger collateral than that securing other consumer loans. In addition, because of the adjustable rate structure, HELOCs present less interest rate risk to the Bank.

Consumer loans for the purchase of automobiles represented 15.6% of the Bank’s consumer loan portfolio at June 30, 2024, and totaled $22.5 million, or 0.6% of net loans receivable. Of that total, an immaterial amount was originated by auto dealers. Typically, automobile loans are made for terms of up to 66 months for new and used vehicles. Loans secured by automobiles have fixed rates and are generally made in amounts up to 100% of the purchase price of the vehicle.

Consumer loan rates and terms vary according to the type of collateral, length of contract and creditworthiness of the borrower, which is evaluated using credit scoring. Consumers with additional qualifying Bank products are eligible for additional pricing discounts. The underwriting standards employed for consumer loans include employment stability, a determination of the applicant’s payment history on other debts, and an assessment of ability to meet existing and proposed obligations. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount.

Consumer loans may entail greater credit risk than do residential mortgage loans, because they are generally unsecured or are secured by rapidly depreciable or mobile assets, such as automobiles. In the event of repossession or default, there may be no secondary source of repayment or the underlying value of the collateral could be insufficient to repay the loan. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. The Bank’s delinquency levels for these types of loans are reflective of these risks. See "Asset Classification."

Commercial Business Lending. The Bank’s commercial business lending activities encompass loans with a variety of purposes and security, including loans to finance accounts receivable, inventory, equipment and operating lines of credit. At June 30, 2024, the Bank had $668.3 million in commercial business loans outstanding, or 17.6% of net loans receivable. Of this amount, $176.0 million were loans related to agriculture, including amortizing equipment loans and annual production lines. The Bank expects to maintain, and may increase, the percentage of commercial business loans in its total loan portfolio.

The Bank currently offers both fixed and adjustable rate commercial business loans. At fiscal year end, fixed rate commercial loans represented 55.6% of the commercial loan portfolio with a weighted average maturity of 2.3

13

years. The adjustable rate business loans typically reprice daily, monthly, quarterly, or annually, in accordance with the Wall Street prime rate of interest. The Bank typically includes an interest rate "floor" in the loan agreement.

Commercial business loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. Generally, commercial loans secured by fixed assets are amortized over periods up to five years, while commercial operating lines of credit or agricultural production lines are generally for a one year period. The Bank’s commercial business loans are evaluated based on the loan application, a determination of the applicant’s payment history on other debts, business stability and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount.

Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.

Small Business Administration (SBA) Lending. The Bank’s commercial and construction business lending activity includes some loans guaranteed by the SBA. In fiscal 2024, $1.4 million in originations was guaranteed by the SBA, and as of June 30, 2024, the Company held balances of $14.4 million in its portfolio representing the unguaranteed portion of SBA loans it had originated. The Company had sold and was servicing $49.8 million of the guaranteed portion of SBA loans as of June 30, 2024.

Contractual Obligations and Commitments, Including Off-Balance Sheet Arrangements. The following table discloses our fixed and determinable contractual obligations and commercial commitments by payment date as of June 30, 2024. Commitments to extend credit totaled $898.6 million at June 30, 2024.

    

Less Than

    

    

    

More Than

    

1 Year

1-3 Years

4-5 Years

5 Years

Total

 

(Dollars in thousands)

Federal Home Loan Bank advances

$

7,995

$

54,055

$

40,000

$

$

102,050

Certificates of deposit

 

1,082,571

 

166,217

 

95,921

 

95

 

1,344,804

Total

$

1,090,566

$

220,272

$

135,921

$

95

$

1,446,854

    

Less Than

    

    

    

More Than

    

1 Year

1-3 Years

4-5 Years

5 Years

Total

 

(Dollars in thousands)

Construction unfunded commitments

$

60,398

$

99,952

$

45,751

$

2,945

$

209,046

Other loan commitments

 

532,242

 

65,520

 

22,054

 

69,752

 

689,568

$

592,640

$

165,472

$

67,805

$

72,697

$

898,614

Loan Maturity and Repricing

The following table sets forth certain information at June 30, 2024, regarding the dollar amount of loans maturing or repricing in the Bank’s portfolio based on their contractual terms to maturity or repricing, but does not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. Mortgage loans that have adjustable rates are shown as maturing at their next repricing date. Listed loan balances are shown before deductions for undisbursed loan proceeds, unearned discounts, unearned income and allowance for credit losses.

14

After

After

One Year

5 Years

    

Within

    

Through

    

Through

    

After

    

One Year

5 Years

15 Years

15 Years

Total

 

(Dollars in thousands)

Residential real estate

$

179,314

$

348,162

$

377,889

$

280,327

$

1,185,692

Commercial real estate

 

321,479

 

899,050

 

387,047

 

14,789

 

1,622,365

Construction

358,388

79,746

438,134

Consumer

92,944

47,109

4,231

314

144,598

Commercial business

415,250

222,183

28,806

2,053

668,292

Total loans

$

1,367,375

$

1,596,250

$

797,973

$

297,483

$

4,059,081

As of June 30, 2024, loans with a maturity date after June 30, 2025, with fixed interest rates totaled $2.4 billion, and loans with a maturity date after June 30, 2025, with adjustable rates totaled $288.4 million.

Loan Originations, Sales and Purchases

Generally, loans are originated by the Bank’s staff, who are salaried loan officers. All loan officers are eligible for bonuses based on production, market performance, and credit quality. Certain lenders, in particular those originating higher volume of residential loans for sale on the secondary market, may earn a relatively higher percentage of their total compensation through bonuses. Loans are originated both to be held for investment and to be sold into the secondary market. Loan applications are generally taken and processed at each of the Bank’s full-service locations and online for single-family residential loans.

While the Bank originates both adjustable-rate and fixed-rate loans, the ability to originate loans is dependent upon the relative customer demand for loans in its market. In fiscal 2024, the Bank originated $917.3 million of loans, compared to $1.2 billion and $1.1 billion, respectively, in fiscal 2023 and 2022. Of these loans, mortgage loan originations were $691.5 million, $1.0 billion, and $970.1 million in fiscal 2024, 2023, and 2022, respectively. Increases in originations over recent periods is attributed to increased lending activity, increased borrower refinancing, and an expanded market area and customer base following recent mergers.

From time to time, the Bank has purchased loan participations consistent with its loan underwriting standards. During fiscal 2024, the Bank committed to purchase $29.8 million of new loan participations. At June 30, 2024, outstanding balances on loan participations purchased totaled $178.5 million, or 4.7% of net loans receivable. An additional $97.7 million is available to be drawn on these purchased participation loans. At June 30, 2024, all of these participations were performing in accordance with their respective terms. The Bank evaluates additional loan participations on an ongoing basis, based in part on local loan demand, liquidity, portfolio and capital levels.

15

The following table shows total loans originated, purchased, sold and repaid during the periods indicated.

Year Ended June 30, 

    

2024

    

2023

2022